sale of a 2nd house

[enginecaptain]

Around 2000, my wife and I purchased a piece of property on which we put a manufactured home for my in-laws to live in.  The total cost of investment was about $220,000 for both property and manufactured home.  Her father was a pastor with limited income and eventually retired from the ministry having only social security income.  We supported them as they lived in our "2nd house" by sending them money for repairs, etc. over the years.  It wasn't a "rental." There were never any payments to us for rent, nor did we calculate depreciation during the past 20+ years.  We'd visit often, staying overnight and sometimes for a week at a time for upkeep and to make necessary repairs. Over the past 20 years, we were at the house maybe a total of between 600 and 800 days.... it's difficult to calculate exactly how many trips we actually made to "visit."

This past tax year, my in-laws moved into our home and we sold the house for a gross amount of $300,000.  After calculating all costs for sale and upkeep and repairs over the years,  there was probably a net gain of about $50,000. If I understand some of the tax rules correctly, we would have needed to have spent a certain amount of time in the home to qualify for it to be our "2nd home." If true, I'm not sure what that required number of days would be to "qualify."  My question... since it wasn't our "primary residence," but a "2nd home" and it wasn't used as a rental for income, do we need to pay a tax on the $50,000 gain?  Second question... IF a required amount of time staying with my in-laws IS required to eliminate the federal tax, must we have a record supporting each time we traveled to spend an overnight in the house, or can we estimate that figure and the IRS would have to show otherwise, were we to be audited? 

Thank you    

[pk]

@enginecaptain , all that the 2nd  home implies is that it is personal property and NOT an income property --- thus there is no expense deductions, no depreciation allowed  etc.   Your  basis in such a property is acquisition cost and cost of any improvements, repair expenses are not deductible.  Also since there was no rent paid to you, there is no Schedule-E reporting over the years  i.e. there was no earnings.

The long term gain  that you have on the property is a taxable gain  ( ONLY  your main home qualifies for  gain exclusion ) and will be generally taxed at your capital gain rate  ( based on your AGI ) of  0%,  through 20%.  Most  people pay 15%.

Does this help ?

[Carl]

since it wasn't our "primary residence," but a "2nd home" and it wasn't used as a rental for income, do we need to pay a tax on the $50,000 gain?

Yes.

IF a required amount of time staying with my in-laws IS required to eliminate the federal tax,

Unfortunately, that's irrelevant. At no time during your period of ownership was the property your primary residence.

[enginecaptain]

Yes, this adds light to my situation.  Thank you

[Hal_Al]

Q. Since it wasn't our "primary residence," but a "2nd home" and it wasn't used as a rental for income, do we need to pay a tax on the capital gain on the sale.

A. Yes.  The capital gain on the sale of a "second home" or other personal use property (other than your principal residence) is taxable.  A capital loss is not deductible. A loss on investment property would be deductible. 

A bigger question, for you is: is $50,000 your capital gain?  You said "After calculating all costs for sale and upkeep and repairs over the years,  there was probably a net gain of about $50,000".

The cost of  "upkeep and repairs over the years" is not  deductible from your gain on the sale (nor are they added to the cost basis).  Only "improvements" can be added to the cost basis.   "Costs for sale" are deductible, including any repairs explicitly made, in the year of sale, to get the property ready for sale.